Happy Paws is a pet fitness company that has just been listed on NYSE. The firm is expected to generate a free cash flow (FCFF) of $10 million in the coming year. The free cash flow is then expected to grow at 4% per year in perpetuity. Happy Paws maintains a constant debt-to-value ratio of 60%. The firm currently plans to maintain this leverage ratio constant forever. The firm's debt consists of B rated bonds with a yield to maturity (ie a promised yield) of 11.05%. The default probability and the loss in default for B-rated bonds are estimated to be 5.5% and 70% respectively. Since Happy Paws has only been listed for a short period of time, you do not have enough historical data to estimate the equity beta. However, you do have data for Sporty Fifi and Olympian Pets, two firms in the same industry. Sporty Fifi also maintains a constant debt-to-value ratio, while Olympian Pets is unlevered. Equity Beta Debt Beta Debt-Equity Ratio Sporty Fifi 3.2 0.2 0.5 Olympian Pets 2.3 N/A 0 The risk-free rate is 3%, the market risk premium is 7%, and the corporate tax rate is 20%. a. Estimate the equity beta for Happy Paws. b. Calculate the weighted average cost of capital for Happy Paws. c. Calculate the market value of Happy Paws' debt and equity. Hint: First you have to calculate the total value of the firm (equity plus debt). d. Calculate the present value of the interest tax shields for Happy Paws. Hint: V = V, + PVT